Microsoft’s Chris Yamashita says IT is becoming less of a generic service provider and more of a true and specific business partner. At the same time, the C-suite is taking on more responsibility when it comes to tech solution spending. How are these changes affecting the relationship between IT and the C-suite?
FEI Daily spoke with Yamashita, Director, Business Architecture at Microsoft, about why tech spending decisions end up in the hands of business owners and how IT and senior-level financial executives are working together.
FEI Daily: We’re seeing a shift from IT as the primary spender on tech solutions to the business owners. Why is that?
Chris Yamashita: If you look at the research that's coming from Gartner, or Forrester, or from IDC, there clearly is a shift occurring within the marketplace, from IT being the huge decision factor with an IT spend towards business people making much, much clearer and direct decisions on spending. And a lot of that has to do with two factors. Number one is the fact that the cloud really enables business buyers to buy a lot of applications and solutions that are very, very tailored to their specific needs, that can be delivered through the web or through a portal that doesn't actually require the IT infrastructure of the company who's using it.
Think about a scenario in the past where if I need to set up a new application on my PC and I worked at a big company, I called up IT. I had to negotiate a license, and then they put everything through. Then, they installed it on my PC, they did all the security checks and then I got what I wanted. It was a very, very large process, but it was typically handled through an IT organization just because of the way the infrastructure works and stuff had to be installed in data centers and all the rest of that fun stuff.
Fast forward to today where you've got cloud-based staff and paas-based applications where, essentially as an end user buyer you can go online or you can have a provider set you up through a web portal and, basically, you can start using the actual solution today. That direct correlation between buyer and provider is why we're starting to see a lot of that shift occurring.
The other big trend that we really do see also is that the actual specialization of the tools is becoming much, much more in tune with end users. If you think about 20 years ago as a software provider, Microsoft was providing really a generic set of productivity tools and so were most solution providers. You got to your desk and you've got Excel, you have Word, and use a database, and all the rest of that stuff, and you use those tools to drive your business, and you tailored those tools to drive your business.
On top of that if you needed something else that was custom, you had to go to IT to code a lot of the stuff and do a lot of that work. Today, I think the dynamic is a lot different in that people are looking for much more specialized solutions that are very, very tailored to their industry's specific requirements, and what they need to drive their business can be done in a lot more efficient ways at scale using highly-tailored solutions that can be delivered through the cloud.
What you see now is spending decisions being made by the business owners as opposed to the IT owners. And that shift has moved the responsibility for understanding what they want, what they need, and how they're going to use it away from IT to the actual business owners. That requires a new skill set and understanding from those business decision makers on what they're getting and what their options are.
FEI Daily: Do the business owners have the background or skills to manage the relationship with the vendor? Are they asking the right questions?
Yamashita: I think that's one of the evolving skill sets for most CXOs and C-suite level people. You have this evolving role where tooling and understanding how you can most efficiently run your organization is becoming a skill set that people need to develop. If you were to ask me today, do people have all the skills and all the understanding they need to be able to do this type of work? The answer is probably no.
When people made the transition from doing spreadsheets on giant pieces of paper, to doing them in a PC on a digitized spreadsheet, I think you have the same level of transition occurring where I think a lot of CXOs need to really, really start understanding the optionality of the cloud, what the gives and takes are, and what the pros and cons are of having cloud-based solutions that they're directly provisioning.
A number of conferences we go to, even now versus five years ago, where you have a lot more CFOs and COOs of companies really asking us question about, ‘Help me understand where I am versus my competition in terms of cloud adoption for my specific line of business.’ Or ‘Help me understand the security protocols and the gives and takes between different sorts of cloud options.’ Those conversations are far more prevalent than they were five years ago. Five years ago, people were saying, ‘This is all great and I'll talk to my IT guy about how to make this happen.’
That conversation has now evolved to say, ‘Help me understand where I’m at from my own standpoint as a company and also, within that, help me understand what the tradeoffs are for using the different platforms and the different options that are available to me.’ I think finance people overall, given our analytical background are probably in a really, really good space to do it.
I spoke at the technology conference in Minneapolis last year and I had a lot of chats with people before and after the conference who are not huge, huge enterprises, but they're small midsize companies and their CFOs are being given the task of figuring out what the digital strategy is for their enterprises. And that comes down to the fact that a lot of the discussion and a lot of decisions are business case-, ROI-driven understanding that the CEOs of the companies really place in the wheelhouse of the CFOs. It's like, ‘what is the risk profile of moving all of our data into cloud versus keeping it on-prem? What is the cost benefit analysis of us moving into the cloud from an operating cost standpoint? What's our ongoing exposure to any number of different environmental factors by moving to the cloud versus staying on-prem?’ All of those things are questions that CEOs and other business partners are asking CFOs to respond to and the CFOs are responding by generating out that level of insight in their own organizations or are going to have to generate that level of expertise, understanding, or insights in order become and maintain an effective business partner in the future.
FEI Daily: What are the risks associated with these decisions being in the hands of the CFO?
Yamashita: For finance executives especially, I think there are three major areas of risk. Obviously, one of the primary roles of CFOs within companies is to take a very close look at cash flow and look at the balance sheet versus the P&L, and all the rest of those core business metrics that I think enterprises rely on the CFOs to manage, contain, and control. The transition into the cloud and the provisioning of fast paas solutions versus the traditional legacy products does have some fairly significant ongoing financial impacts.
I think the risk is that CFOs need at least a fairly good understanding of what the potential financial impacts are of cloud transition and the impacts that are out there on an ongoing basis. One of the areas that I think CFOs really need to understand is it has a fairly significant impact not only on the IT line item, but the way that IT line item blends within the reporting of the company. First and foremost, I think that's a big area where CFOs need to focus on and what the risk is for them.
The second area then is really understanding what the actual, true risk is of cloud transition versus on-prem, from the data exposure, redundancy, and business continuity standpoints. Most of the CROs that we run into are usually associated with the financial organizations and understand the tradeoffs of the different options that they have available to them in relation to risk. That is highly, highly important to finance organizations overall.
Third, and probably most interesting, because the first two are very bread and butter, block and tackle for finance organizations, is applying new cloud-based solutions and accelerating the adoptions of these technologies in finance organizations can be tremendously empowering to them as they go about their daily work. The ability to automate and really drive enhanced productivity of their people through the attachment of technology, allows them to move their organizations further up the value chain just like IT did. The example I would give is financial forecasting and at large enterprises like Microsoft or any company of our size, traditionally a large component of that organization is focused on doing financial forecasting. And you have a lot of people hours being dedicated to doing very accurate line level financial forecasting.
What we know now, is that things like artificial intelligence coupled with map data gathering through the web, allows us to create the forecast in a much faster and much less burdensome fashion. And that does one of two things. It allows the CFO to make the choice saying, ‘I can reduce my total cost to serve.’ Always an option. Or number two, is ‘I can reallocate my people to do higher value business things that help drive business with our business partners better.’
I think the most innovative CFOs that we see are unleashing that capability within their organization to drive better business insight and drive better business decision making, as opposed to just trying to serve up numbers. We’re seeing that evolution here at Microsoft, to more machine learning driven forecasting models and artificial intelligence driven data clean up and things like. It's allowed us to redeploy people to work in parts of the business that we've never worked in before. Like working upstream with R&D to help understand and help optimize product development lines so they're more financial viable once they hit the market. Working with our data scientists to really drive an understanding what it takes to deliver relevant financial cases to our partners or to our customers as they think about data center transition. All those types of things aren't available to you within a low opex growth environment unless you're taking away work from other lower productivity cases and that's really where the cloud can come in and help.
FEI Daily: What does all this it mean for the relationship between the C-suite and IT?
Yamashita: What we're seeing is a lot more IT departments now reporting through finance. Part of our operating capacity within a finance organization is really understanding the IT component. What's really changed is there's a lot more tradeoff analysis and optionality in actually running an IT department. In the past, if you were a very large enterprise, you didn't have much other choice other than running a whole bunch of servers in some server farm and some data center that was running your company. You could always offload that and outsource it to a third party provider or to a Rackspace or to one of those different providers, but essentially you were still owning a lot of your own hardware or you were contracting to own a bunch of hardware that was dedicated to you as a company.
When you enter a world where you have cloud options and you've got optionality and buying service, as opposed to an actual hardware installation or a managed provider, it creates a whole new dynamic in terms of what IT's role is in its relationship with its business partners. In a lot of ways, what it's responsible for now is providing the optionality between different types of cloud and future proof options, and the existing implantation and on-prem of work.
That leads to a lot of challenges from just a self-preservation standpoint, in that if you're an IT department you've got half your organization dedicated to maintenance and cycling through a data center, obviously proposing ‘we're going to move this all to the cloud’ creates an inherent conflict from a preservation standpoint. That's why I think you're seeing a lot more IT departments now becoming a part of a financial organization or becoming part of a broader organization that can take a look at those tradeoffs in a much more objective way.
But what we also see IT doing now, which I think is really great evolution as a function, is that IT is becoming less of a generic service provider as opposed to becoming a true, very specific business partner. In the past, where an IT department had a large number of people put on servers, or did hard first line support, or did installations of patches and upgrades to different pieces of software, that skill set is no longer valued, because obviously when you're moving to the cloud most of the things aren't needed anymore. What we're starting to see now is that IT departments are becoming much closer to their business partners, and very specialized in supporting those business partners, either through the maintenance and provisioning in use and adoption of cloud based tools, or, even probably more exciting for us is when you see them evolving into much more of the data science roles. And the roles which really help the business partners understand the huge, huge amounts of data that are coming out of these online systems that are now acceptable to a lot of end user business people.
That evolution has been a really nice transition for IT departments because it's allowed them to move up the value chain within the organization while still maintaining a highly relevant role. But it does require a very, very skill set than what you've traditionally had.
To learn more about technology trends and their potential impact on the finance profession over the next five to 10 years and beyond, register for FEI’s 2018 Technology for Finance Leaders Conference May 7-8, 2018 in Boston, MA.